It is “almost impossible” to find a term deposit matching the age pension deeming rates, and so the rates should be cut to bring them back in line with interest rates, says a seniors organisation.
Advocacy organisation National Seniors Australia has called for the age pension deeming rate to be cut, following the recent RBA interest rate decision.
National Seniors points out that the deeming rate hasn’t been adjusted since 2015, while over the same period the RBA has lowered the cash rate from 2.25% to a record low of 1.25%.
The deeming rate is used to assess income from financial assets. The deeming rate is currently either 1.75% or 3.25%, depending on the level of financial assets and if the pensioner is single or in a couple.
The Cash Rate was already below both deeming rates, and the recent RBA cut has pushed it lower. Whereas in the past it has generally tracked with the higher deeming rate.
“Pensioners relying on income from bank deposits are getting hit twice. Firstly, from reduced income from deposit investments and then by again by deeming rates that don’t reflect lower interest rates but which are applied against income to determine the level of pension they will receive,” said National Seniors.
According to National Seniors Chief Advocate Ian Henschke, it is almost impossible for pensioners to get a bank deposit investment that matches the interest rate they are deemed to be earning.
“For example, one of the big banks today is offering a term deposit rate of 2 per cent for amounts above $50-thousand and the interest paid only at the end of the term.”
“However, a single pensioner is deemed to be earning 3.25 per cent for the same amount, an amount the bank is offering just 2 per cent.”
“This is why pensioners are contacting us saying the government needs to cut the deeming rate.”
Henschke said the government should review deeming rates to bring them in line with interest rates.
“Current deeming rates are now significantly out of alignment with the lower income generated by bank deposit investments.”
“However, seniors’ eligibility for the Age Pension and the pension amount they receive is still subject to those deeming rates.”
“It is not fair to apply a deeming rate that was set in 2015 to a pensioner’s bank deposit income which has dropped significantly as a result of the RBA’s decision to cut to a record low.”